, Educational

What Are the Odds?

October 2, 2017 / by TradeSmith Education

A chance meeting at the Stansberry Conference in Las Vegas last week got me thinking about the odds of different stock market scenarios.

It was Tuesday evening, the night before the conference began. I was at the registration desk waiting to get into the exhibit hall to set up the TradeStops table. There was one other couple at the desk going through the registration process and we started talking.

Stan and Mary introduced themselves to me. They live in the Pacific Northwest and have been TradeStops members for a while. We got to talking and during the course of our conversation, I found out that they’re from the same area of the country that I’m from… Kansas!

It turns out that Mary and I attended the same high school – Shawnee Mission East – in Prairie Village, Kansas. And Stan and I both went to the University of Kansas! Rock Chalk!! What are the odds that we’d end up meeting on a Tuesday night in Las Vegas?

I don’t know what those odds are. But I do know that TradeStops can help you understand the odds of succeeding in the markets.

Back in August 2016, TradeSmith showed that by following the Stock State Indicator (SSI) Entry and Stop signals, you could have averaged a gain of almost 37% per trade.

This table shows the results of over 7400 trades going back 20 years using the SSI system. There were almost 53% winners. The average winner gained 84% while the average loser lost only 16%. That works out to an average gain per trade of almost 37%.

With winners averaging 5-1 over the losers, the odds of investing in a stock after it has Gone Green are very much in your favor.

But what about the other side? A lot of people are afraid of a huge bear market similar to 2000-2002 and 2007-2009. How can we improve our odds of knowing when that is going to happen?

TradeStops has you covered on that one as well. This past July, we showed you that if 40% of your stocks are in the SSI Red Zone, there’s a good chance that a bear market is closing in.

The red line below represents when 60% of S&P Select Sector ETF stocks are not stopped out. Anything below the line is when more than 40% of the stocks have been stopped out. Anything above the line is when less than 40% of the stocks are stopped out. The larger the percentage of stocks stopped out, the worse the market has done.

We can look at this very simply using the Dow Jones Industrial Average (DJIA). The DJIA has 30 stocks so when 12 stocks are in the SSI Red Zone, the odds are that it would be a good time to get out of the market completely.

Today, we only have four stocks in the SSI Red Zone and only one in the SSI Yellow Zone. That means there are 25 stocks that are still in the SSI Green Zone.